Income and Wealth Inequality

Nicholas Bloom

Raj Chetty

Emmanuel Saez

Leaders: Nicholas Bloom, Raj Chetty, Emmanuel Saez

The CPI is home to some of the country’s most influential analyses of the income and wealth distribution. The purpose of the Income and Wealth RG is to monitor the ongoing takeoff in income inequality, to better understand its sources, and to analyze its implications for labor market performance, educational attainment, mobility, and more. The following is a sampling of the CPI’s research projects within this area.

Trends in income and wealth inequality: What are the key trends in U.S. income and wealth inequality? The U.S. increasingly looks to Emmanuel Saez and his research team for the latest data on U.S. economic inequality.

Distributional National Accounts: In an ambitious infrastructural project, Emmanuel Saez and his team are building a “Distributional National Accounts” based on tax returns, a data set that will eliminate the current gap between (a) national accounts data based on economic aggregates and (b) inequality analysis that uses micro-level tax data to examine the distribution of income but is not consistent with national aggregates. This new data set will in turn make it possible to evaluate the extent to which economic growth, which has long been represented as a preferred poverty-reduction approach, is indeed delivering on that objective.

The rise of between-firm inequality: How much of the rise in earnings inequality can be attributed to increasing between-firm dispersion in the average wages they pay? This question can be addressed by constructing a matched employer-employee data set for the United States using administrative records.

Rent and inequality: It is increasingly fashionable to argue that “rent” accounts for much of the takeoff in income inequality. The Current Population Survey can be used to assess whether this claim is on the mark.

Featured Examples

Click on the active buttons for a full listing of all the important policy analysis, basic research, or journalism addressing this key issue. Also explore our working papers addressing this key issue and our affiliates with expertise in this key issue.

Dozens of past studies document how affluent people feel somewhat better about life than middle-class people feel and much better than poor people do. New analyses of the General Social Surveys from 1974 to 2012 address questions in the literature regarding aggregate responses to hard times, whether the income-class relationship is linear or not, and whether inequality affects happiness. General happiness dropped significantly during the Great Recession, suggesting that the income-happiness relationship might also exist at the macro level. People with extremely low incomes are not as unhappy as a linear model expects, but there is no evidence of a threshold beyond which personal happiness stops increasing. Comparing happiness over the long term, the affluent were about as happy in 2012 as they were in the 1970s, but the poor were much less happy. Consequently, the gross happiness gap by income was about 30 percent bigger in 2012 than it was in the 1970s. A multivariate model shows that the net effect of income on happiness also increased significantly over time.

Generalized Social Marginal Welfare Weights for Optimal Tax Theory

This paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using "generalized social marginal welfare weights." Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized weights. Weights directly capture society's concerns for fairness without being necessarily tied to individual utilities. Suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, equality of opportunity, or poverty alleviation.

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals

This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27-year period we find that consumption inequality increases almost as much as does income inequality.

Intergenerational Mobility and Gender in Mexico

This article studies intergenerational socioeconomic mobility in Mexico comparing men and women. In contrast to most sociological work that uses individual-level measures to proxy family socioeconomic status, we use a direct measure of family living standards for both generations, based on an index of economic well-being. Strong intergenerational persistence is found in Mexico compared to other countries. Persistence is stronger for men than women, particularly among advantaged families. The role of education in the mobility process is examined. Findings indicate that “excess immobility” of men is not mediated by education. Wider gender differences among married/cohabiting than single respondents suggests parents are more likely to transfer socioeconomic resources to their married sons than married daughters. We argue for the advantages of measuring socioeconomic status directly at the household level, and of evaluating gender differences to gain insight about mobility mechanisms.

Intergenerational Mobility and Equality of Opportunity

Intergenerational mobility—the association between parents’ and adult children’s economic wellbeing—is an important sociological concept because it provides information about inequality of opportunity in society, and it has gained relevance in the recent past due to the increase economic inequality in most of the affluent world. This article provides an overview of the different measures of mobility used by sociologists and economists, as well as main empirical findings about mobility. I then move to topics that push mobility analysis beyond its bivariate focus: The association between intergenerational mobility and economic inequality, the mechanisms for mobility, and the validity of mobility as a measure of inequality of opportunity. I suggest that the association between mobility and inequality is likely spurious, driven by varying institutional arrangements across countries, and that mobility analysis is most useful when focused on describing the bivariate intergenerational association across countries and over time.

Is the Corporate Elite Fractured, or is there Continuing Corporate Dominance? Two Contrasting Views

This article compares two recent analyses of continuity and change in the American power structure since 1900, with a main focus on the years after World War II. The first analysis asserts that the “corporate elite” has fractured and fragmented in recent decades and no longer has the unity to have a collective impact on public policy. The second analysis claims that corporate leaders remain united, albeit with moderate-conservative and ultra-conservative differences on several issues, and continue to have a dominant collective impact on public policies that involve their major goals. After comparing the two perspectives on key issues from 1900 to 1945, the article analyzes the fractured-elite theory’s three claims about the postwar era: an activist government constrained the corporate elite, the union movement negotiated a capital-labor accord; and bank boards created policy cohesion among corporations. Finally, it compares the two perspectives on tax issues, health-care policies, and trade expansion between 1990 and 2010.

Household Wealth Trends in the United States, 1962-2013: What Happened Over the Great Recession?

Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2013. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010, almost double the drop in housing prices. The inequality of net worth, after almost two decades of little movement, was also up sharply. Relative indebtedness expanded, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall. Wealth inequality and the racial and ethnic wealth gap also remained largely unchanged, though there was some recovery of net worth for young households.

Wealth Levels, Wealth Inequality, and the Great Recession

This research brief assesses two questions about the extent to which the Great Recession altered the level and distribution of wealth through 2013--the most recent year of data available on wealth held by American families. 1. By how much did wealth levels decline during the Great Recession, and by how much did they recover through 2013? 2. Did wealth inequality increase, decrease, or remain steady during the Great Recession?

Overwork and the Slow Convergence in the Gender Gap in Wages

Despite rapid changes in women’s educational attainment and continuous labor force experience, convergence in the gender gap in wages slowed in the 1990s and stalled in the 2000s. Using CPS data from 1979 to 2009, we show that convergence in the gender gap in hourly pay over these three decades was attenuated by the increasing prevalence of “overwork” (defined as working 50 or more hours per week) and the rising hourly wage returns to overwork. Because a greater proportion of men engage in overwork, these changes raised men’s wages relative to women’s and exacerbated the gender wage gap by an estimated 10 percent of the total wage gap. This overwork effect was sufficiently large to offset the wage-equalizing effects of the narrowing gender gap in educational attainment and other forms of human capital. The overwork effect on trends in the gender gap in wages was most pronounced in professional and managerial occupations, where long work hours are especially common and the norm of overwork is deeply embedded in organizational practices and occupational cultures. These results illustrate how new ways of organizing work can perpetuate old forms of gender inequality.

The Impact of Earnings Disregards on the Behavior of Low-Income Families

This paper investigates the impact of changes in earnings disregards for welfare assistance received by single mothers following welfare reform in 1996. Some states adopted much higher earnings disregards (women could work full-time and still receive substantial welfare benefits), while other states did not. We explore the effect of these changes on women's labor supply and income using several data sources and multiple estimation strategies. Our results indicate these changes had little effect on labor supply or income. We show this is because surprisingly few women used the earnings disregards. We discuss several explanations for why this might occur.